Cold winter won't help 'ridiculous' cost of oil

Whether you use heating oil, natural gas or electricity, you are likely to pay more — potentially a lot more — than last winter.

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By The Morning Call

poconorecord.com

By The Morning Call

Posted Nov. 27, 2012 at 12:01 AM

By The Morning Call

Posted Nov. 27, 2012 at 12:01 AM

» Social News

Whether you use heating oil, natural gas or electricity, you are likely to pay more — potentially a lot more — than last winter.

The main reason has to do with the weather.

Last winter was practically balmy, which was especially good for oil users. It meant they were spared the full brunt of record-high oil prices.

But it looks as if they won't be so lucky this time around, according to the U.S. Energy Information Administration. Oil prices remain high, and weather forecasters do not expect another reprieve from Mother Nature.

With normal winter weather, oil users can expect to pay 19 percent more to heat their homes this winter, according to the EIA. And if the average temperature turns out to be 10 percent lower than normal, they can expect to pay 32 percent more.

"Ridiculous" — that's the word Tony Malandra, president of Yeager's Fuel in Allentown, used to describe the price of oil, which last week was about $3.70 a gallon at local full-service dealers.

He blamed Wall Street commodities traders who, he said, are driving up the price of oil despite ample supply.

"We're waiting for prices to pull back," he said. "These things are cyclical."

Also affecting the price of oil are growing demand in Asia, instability in the oil-rich Middle East and production disruptions by extreme weather, such as Hurricane Sandy.

Malandra has good reason to hope for a market correction. Yeager's and other oil dealers do not profit from high prices. To the contrary, they take a hit, since they make their money on small surcharges and service fees, which they collect less of as their customers conserve more.

"They are turning their thermostats down, putting their sweaters on," he said.

Natural gas users, meanwhile, can expect to pay 15 percent more this winter, and 28 percent more if the average temperature is 10 percent lower than normal.

Of course, natural gas users have a lot less to worry about than oil users, because they have a much smaller expense to begin with.

The typical heating oil customer who lives in the Northeast is expected to spend $2,526 on fuel this winter, up 67 percent from the 2006-07 winter, according to the EIA.

But at $1,024, the projected expense for the natural gas customer is virtually unchanged over the same six-year period — and less than half that of oil.

The growing differential between the two fuels is largely the result of new technology that has led to increased domestic gas production, including along Pennsylvania's Marcellus Shale formation.

Donald Caldwell is among those switching heat sources. Crews were busy at his Bethlehem rental property running gas lines that will heat the home. He rents the house to college students, and is worried they won't be able to afford heating oil.

Also, he thinks converting to natural gas will make the property more valuable if he tries to sell it. He expects monthly heat bills to drop in half with a gas conversion.

He's not alone.

A total of 11,316 UGI customers converted their home heat source to natural gas in the fiscal year ending Sept. 30, up more than 50 percent from the previous year and a record for the utility, UGI spokesman Joe Swope said.

Most of those converting previously had oil heat, he said.

The decline in natural gas prices is also benefiting those who heat their homes with electricity.

In a quirk of how electricity generation rates are determined, the price of natural gas has disproportionate influence. So it follows that electricity rates track natural gas, and that those rates have fallen with the increase in gas extraction.

PPL Electric Utilities announced its new "price to compare" — 7.54 cents a kilowatt-hour for the three-month period starting Dec. 1, down from the current 7.91 cents.

In January 2010, PPL's first month of deregulated rates, the "price to compare" was 10.45 cents a kilowatt-hour.